HL vs. Terry Smith

Moe_The_Bartender

Mrc44 said:

Moe_The_Bartender said:

Fundsmith hasn’t tried to get on HL's wealth list. He doesn’t give a toss about them. All he has ever done is point out HL's hypocrisy and say that he isn’t prepared to reduce his charges to get on their list.

FS is my biggest holding by far and if it costs me .95% to get the kind of returns that Smith delivers, why would I want to pay a little less for an inferior product? For years, HL had utter dogs on its list like Neptune Russia and BlackRock UK Absolute Alpha. Different products but any one investing in them needed certifying.

Moe_the_bartender taking in to account the higher fund costs would it be fair in saying that the Fundsmith fund far outperforms a multli asset fund such as Hsbc global on as much as a like for like basis as possible? 

They are totally different beasts and you can’t compare them. If you are talking about the HSBC Global Balanced Strategy Portfolio, you only have to look at the relative performance to know the answer.

Dandytf

@2unlimited91
That's my 2nd chosen H.L. Fund due to start over next few days.

aroominyork

aroominyork said:

2unlimited91 said:

AnotherJoe said:

2unlimited91 said:

Isn't the real contest: who is more blatantly over-charging? HL, with a platform fee of 0.45% on £100bn assets; or Fundsmith, with a management fee of 1% on £20bn assets?

No,  because you are comparing apples with oranges. One is fund management, one is platform.

In other words: yes, you can compare them, though the comparison is complicated, because platforms and fund management are different things.

But I have a gripe with Terry. This week I am going to switch my Fundsmith holding into Fundsmith Sustainable Equity, largely to avoid the tobacco (Philip Morris) holding. Class I of the Sustainable fund charges 1.05% compared to 0.95% for the main fund. That is an unnecessary extra cost which the company (Fundsmith) could easily absorb. Sure they can justify it based on the extra work involved in managing a much smaller fund but I find it churlish and not great PR. If the press gave him a hard time I can easily imagine him bringing the charge down to the same level as the main fund.

Going back to the 0.10% higher charge for the Sustainable fund I have a question for the 'pros' on the forum. A number of funds offer hedged versions of their equity funds at the same charge as their unhedged versions, eg Man GLG Continental European Growth, Lindsell Train Japanese. What is the approximate cost to the fund manager of the hedging? it is interesting that they choose to absorb this in order, presumably, to offer a wider range of products, increase their levels of AUM and appear equitable in how they charge their clients.

bowlhead99

aroominyork said:

Going back to the 0.10% higher charge for the Sustainable fund I have a question for the 'pros' on the forum. A number of funds offer hedged versions of their equity funds at the same charge as their unhedged versions, eg Man GLG Continental European Growth, Lindsell Train Japanese. What is the approximate cost to the fund manager of the hedging? it is interesting that they choose to absorb this in order, presumably, to offer a wider range of products, increase their levels of AUM and appear equitable in how they charge their clients.

They don't choose to absorb it. The investors bear the cost.

The fund's investments (including stocks, cash, derivatives, currency contracts, options or whatever mechanism is being used to hedge the result) will all contribute to the overall change in NAV.

If they buy a Microsoft share for $100 which is worth £80 (a spot rate of $1.25 per £1 today), and then over a year the Microsoft share doubles to be worth $200 but the FX rate changes to be $1.60:£1, an unhedged investor will find his £80 investment in Microsoft shares is now worth £125: a 56% return. 

If they instead offer a hedged class where the investors' £80 is used to buy $100 of Microsoft shares but that class of the fund also takes out a currency contract to sell $150 for £120 in a year's time ... then after the year is up, they could sell the Microsoft share and get the $200, and use the currency contract to exchange $150 for £120, and then exchange the remaining $50 at spot rate ($1.6=£1) which is another £31. So the investor in the hedged class would have £120+31 =£151, compared to his initial cost of £80, which is an 89% return.

The hedged investor didn't double their money like an US-based investor purely investing dollars in Microsoft shares, because the hedge was only partially effective, and in the real world the currency contract  (selling dollars forward at the same spot rate as today) would not be entirely 'free' to acquire; they would 'pay' for that by paying someone else to assign them the contract, or giving up some spread on the exchange rate and doing it at some rate other than the current spot rate.

All the currency shenanigans would be paid for from the fund's assets, and the investor's return from the fund is determined by the change in the fund assets, so of course the investors have 'paid' for any hedging strategy.

The fund management company may not need to charge a higher management fee for a fund that buys a portfolio of stocks and hedges them for currency, versus a fund that buys a portfolio of stock and doesn't hedge them. Because whether the share class is hedged or unhedged, the manager is still using corporate treasury /cash management techniques to make sure they have sufficient liquidity in the right currency to deal with investors' subscriptions and redemptions. So the management work in adding in some additional financial instruments into the portfolio to hedge currency risk on a hedge class may not really consume a lot of management time, only reputational risk if they do a bad job.

However, making management decisions for no extra charge just means that they aren't charging for those decisions. The financial instruments and contracts acquired by the fund are still paid for by the fund. It's not like the manager is buying derivatives and contracts on the financial markets to hedge the currency risk out of its own pocket, and then giving those to the fund for free. But the returns from those financial instruments, derivatives, contracts etc will show up in investor NAV as realised or unrealised gains and losses from time to time, rather than being seen as an 'ongoing charges figure'.

Mrc44

Moe_The_Bartender said:

Mrc44 said:

Moe_The_Bartender said:

Fundsmith hasn’t tried to get on HL's wealth list. He doesn’t give a toss about them. All he has ever done is point out HL's hypocrisy and say that he isn’t prepared to reduce his charges to get on their list.

FS is my biggest holding by far and if it costs me .95% to get the kind of returns that Smith delivers, why would I want to pay a little less for an inferior product? For years, HL had utter dogs on its list like Neptune Russia and BlackRock UK Absolute Alpha. Different products but any one investing in them needed certifying.

Moe_the_bartender taking in to account the higher fund costs would it be fair in saying that the Fundsmith fund far outperforms a multli asset fund such as Hsbc global on as much as a like for like basis as possible? 

They are totally different beasts and you can’t compare them. If you are talking about the HSBC Global Balanced Strategy Portfolio, you only have to look at the relative performance to know the answer.

Thanks moe , my toss up was wether to invest £5000 per year (LISA for retirement) into Fundsmith acc fund or HSBC global strategy adventurous for the next 17years. Obviously things could change Years down the line and have me alter my portfolio where necessary but for now Fundsmith would be the way to go in regards to maximising returns?

bowlhead99

Mrc44 said:
Thanks moe , my toss up was wether to invest £5000 per year (LISA for retirement) into Fundsmith acc fund or HSBC global strategy adventurous for the next 17years. Obviously things could change Years down the line and have me alter my portfolio where necessary but for now Fundsmith would be the way to go in regards to maximising returns?

It would certainly be the way to go if the way you wanted to go was to pay higher active management fees to have the fund manager select a concentrated portfolio of stocks in an attempt to get the best return while accepting you might get a worse return than the average, more balanced portfolio.

HSBC GS Adventurous is quite adventurous in that it puts nearly all its money in equities, although it doesn't put quite all of its money on equities, in an attempt to get a better risk/volatility ratio for the performance it delivers.

Fundsmith puts all is money in equities as it presumes that equities will deliver the best long term returns out of all the asset classes (likely to be correct) and it buys the particular types of equities that Terry Smith likes because he hopes that they will be the best shares to own over the longer term (may prove to be correct or incorrect - we have not had a sufficient variety of different types of crashes, or enough periods of different sets of global economic circumstances, to determine whether he is sufficiently right in his strategy compared to the result of what could be delivered by a cheaper index fund).

Mrc44

bowlhead99 said:

Mrc44 said:
Thanks moe , my toss up was wether to invest £5000 per year (LISA for retirement) into Fundsmith acc fund or HSBC global strategy adventurous for the next 17years. Obviously things could change Years down the line and have me alter my portfolio where necessary but for now Fundsmith would be the way to go in regards to maximising returns?

It would certainly be the way to go if the way you wanted to go was to pay higher active management fees to have the fund manager select a concentrated portfolio of stocks in an attempt to get the best return while accepting you might get a worse return than the average, more balanced portfolio.

HSBC GS Adventurous is quite adventurous in that it puts nearly all its money in equities, although it doesn't put quite all of its money on equities, in an attempt to get a better risk/volatility ratio for the performance it delivers.

Fundsmith puts all is money in equities as it presumes that equities will deliver the best long term returns out of all the asset classes (likely to be correct) and it buys the particular types of equities that Terry Smith likes because he hopes that they will be the best shares to own over the longer term (may prove to be correct or incorrect - we have not had a sufficient variety of different types of crashes, or enough periods of different sets of global economic circumstances, to determine whether he is sufficiently right in his strategy compared to the result of what could be delivered by a cheaper index fund).

Thanks bowlhead, always appreciate your reply’s ,  from your personal view in regards to both funds and having £5000 LISA money per year for 17years which would you go with taking all things into account, higher fund management costs etc? Or what you go elsewhere and chose a different fund altogether? 

Thanks 

bowlhead99

Mrc44 said:

Thanks bowlhead, always appreciate your reply’s ,  from your personal view in regards to both funds and having £5000 LISA money per year for 17years which would you go with taking all things into account, higher fund management costs etc? Or what you go elsewhere and chose a different fund altogether? 

Thanks 

HSBC GS Adventurous is a reasonable solution for someone wanting to spread their money about in an adventurous/ aggressive way without paying for active management. Funndsmith concentrates your money into fewer companies in the hope of getting a better return with the risk of getting a worse return.

I will have more than 5000 available each year to invest but I already have a good amount invested and have a broad portfolio. So, I wouldn't put all of my money into either of those two options.

Fundsmith is the more specialist of the two and wouldn't be a candidate for all of my money. It could be a candidate for some of my money, and as it happens I bought a couple of thousand of it recently, as a bit of a curiosity (though it is less than 1% of my overall pension, so not a meaningful commitment, literally just for curiosity).

Mrc44

bowlhead99 said:

Mrc44 said:

Thanks bowlhead, always appreciate your reply’s ,  from your personal view in regards to both funds and having £5000 LISA money per year for 17years which would you go with taking all things into account, higher fund management costs etc? Or what you go elsewhere and chose a different fund altogether? 

Thanks 

HSBC GS Adventurous is a reasonable solution for someone wanting to spread their money about in an adventurous/ aggressive way without paying for active management. Funndsmith concentrates your money into fewer companies in the hope of getting a better return with the risk of getting a worse return.

I will have more than 5000 available each year to invest but I already have a good amount invested and have a broad portfolio. So, I wouldn't put all of my money into either of those two options.

Fundsmith is the more specialist of the two and wouldn't be a candidate for all of my money. It could be a candidate for some of my money, and as it happens I bought a couple of thousand of it recently, as a bit of a curiosity (though it is less than 1% of my overall pension, so not a meaningful commitment, literally just for curiosity).

Thank you bowlhead , I am currently invested elsewhere in S&S isa / sipp , the reason for the £5000 LISA investment is because that is the maximum amount allowed to invest per year (4000+bonus) up till age 50, which is why I was thinking  to maybe take a “punt” as such with Fundsmith on this pot and hope it would out perform the HSBC GS adventurous after all higher fees etc taken into account.